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Is There Danger in this Gold Run?

Boris Sobolev
Nov 5, 2007

While many market observers are waiting for a correction, gold is pushing relentlessly higher. After it powered through $700/oz, pullbacks on gold became short and shallow. A correction in gold will no doubt come, but we are not willing to bet money on how soon it will occur and how serious it will be.

The weekly chart of gold below shows an overbought condition but a year and a half ago gold was far more overbought time-wise and price-wise. By following the 2003 and 2005 gold rally patterns we can expect a few more months of handsome gains before this rally in the secular gold bull market is over. Any correction at this point would be a healthy sign.

What if, however, we are wrong and gold is now, in fact, making a final spike to its all time high of $850 or higher. The aftermath, as after the top in 1980, could be severe and it would be time to sell? Is this a real possibility?

No, the situation today is completely different:

  • In August 1979, Paul Volcker became the chair of the Federal Reserve and start to fight inflation by radically raising interest rates. Today, Chairman B. Bernanke, in an effort alleviate the pain in the ailing banking system, is aggressively lowering interest rates.
  • 28 years ago, the United States was the biggest creditor nation in the world. Now, the opposite is the case - US is the largest debtor. This, along with the Fed policy is causing the dollar to fall to historic lows.
  • Gold may appear to be overextended but this is not the case in real terms. In fact, gold should be around $3,000/oz in order to reach its inflation adjusted highs. Only then will there be a real reason to worry about a possible end of the gold bull market.

We reiterate that the gold bull market has a long way to go. Don't be afraid to miss the boat - there are many opportunities ahead. Hold your positions and buy the dips.

Boris Sobolev
Denver, Colorado

Disclaimer: The information, opinions and analysis contained herein are based on sources believed to be reliable, but no representation, express or implied, is made as to their accuracy, completeness or correctness. Terrane Metals Corp. ("Terrane") is a sponsor of the Resource Stock Guide, and certain members of Resource Stock Guide may hold securities of Terrane from time to time. This report was prepared independently of Terrane, is for information purposes only and should not be used as a basis for any investment decision without independent advice. The opinions expressed herein are those of the author and not of Terrane. This report is neither a solicitation to buy nor an offer to sell any securities and should not be construed as a paid advertisement. The report contains certain forward-looking statements and is subject to significant risks and uncertainties. The opinions contained herein reflect the author's current judgment and are subject to change without notice. The author encourages its readers to invest carefully and read all public filings which have been made by Terrane which can be found at

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